Saturday, December 1, 2012

MRTA is defined as a term insurance that helps cover the outstanding amount of home loanprovided by a financial institution in events of permanent disability or death of a particular borrower. Before proceeding, keep in mind that MRTA is normally calculated to meet the outstanding loan amount

What happen is after you buy a house, the mortgage agent will normally ask you to buy a bank MRTA. They will advise you to financed into the loan and you will only pay a little bit extra per month. Sounds fantastic!

You overlooked that buying MRTA may not able to fully protect your asset and your family!

Oh, when you bought MRTA, the beneficiary is the bank. If you passed away or suffer from TPD, the bank get the mortgage outstanding balance from the insurance company (of your MRTA policy) and the bank is safe.

So what happen to your house? Wait... common answer will be, "My family gets it lah!"

Wrong!

Your house will be frozen under the estate, your asset will then be used to settle other liabilities such as clearing income taxes (which include any outstanding and uncleared taxes), settle legal expenses, clearing debts from creditors (credit cards) and etc.

After that, if your asset is larger than your liability, your family will then receive the asset. Otherwise, your estate will be declared insolvent or commonly known as bankrupt. Your family will be required to leave the house even though the insurance benefit from MRTA has been paided out. Sounds unfair?

MRTA protects the bank, you and your family are only being protected - with condition.

If you opt for a personal MLTA / Life Insurance, the beneficiary is your family (or whoever you named). Should any mishap happens, your family will get the insurance claim equal to the value of the house (or an amount agreeable at the point of sale). Best part is, proceed from insurance claim is creditor proof and will not be frozen!

Oh, the house will still be frozen of course as it is subject to the same estate execution process.

2 things will happen:

i) If your asset is lesser than your liability, your family have at least the money from the insurance claim. They can buy a new house now.

ii) If your asset is larger than your liability, your family can keep both the house and insurance claim!

Make sense?

Good news! If you decided to move to a bigger house, ONLY your Life Insurance can be used for your new loan.